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United Kingdom Monetary Policy June 2022

United Kingdom: BoE hikes rates again in June

On 16 June, the Bank of England (BoE) increased the bank rate from 1.00% to 1.25%, marking the fifth successive rate hike. As at the prior meeting, three of the nine members of the Bank’s committee voted to instead raise rates by 0.50 percentage points.

The Bank’s decision was driven by the desire to rein in surging inflation. The Bank now expects inflation to peak at over 11% in Q4, up from its May projection of slightly above 10%, due to an expected re-rating of Ofgem’s energy price cap from October. Moreover, the BoE judged that price pressures were not exclusively due to higher imported fuel and food prices, with the tight domestic labor market also playing a role.

Forward guidance grew more hawkish, with the Bank stating it would “take the actions necessary to return inflation to the 2% target sustainably in the medium term”, and was prepared to act “forcefully” if high inflation persisted. In line with this, our panelists still project higher rates later this year, although tightening is still unlikely to be as aggressive as in some other developed markets, such as the U.S.

Nomura’s George Buckley gave his outlook for rates:

“We are […] adjusting our view to 25bp hikes at each meeting in H2 – August, September, November and December – to take Bank Rate to a terminal level of 2.25%.”

Kallum Pickering, senior economist at Berenberg, was slightly more dovish:

“We expect three further 25bps hikes in 2022 – with a hike in each meeting up to and including November. Had another member voted for 50bps at this meeting that would have provided a strong signal that 50bp could come in August. […] as the BoE looks set to announce a schedule for its planned gilt sales in August – so-called active quantitative tightening – policymakers may choose a somewhat aggressive pace of gilt sales (of say £5-10bn per month) as an alternative to steeper rate hikes.”

The next monetary policy decision will be announced on 4 August.

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